Apple's AT&T Bounty: $432 Per iPhone? (Or $288?)

Apple's iPhones could be far more profitable than we thought. Based on an analysis of iPhone revenue that Apple reported yesterday, Piper Jaffray analyst Gene Munster estimates today that carrier partner AT&T pays Apple $18 per month for each of its iPhone subscribers. Over the course of a two-year contract, that's $432 -- more than three times as much as the $120-per-sub payment we previously estimated.

Assuming a $400 iPhone and a $18 monthly contribution from AT&T, Apple would record $832 in revenue over two years per phone. Research firm iSuppli estimated in July that it costs Apple $265 to build an 8-gig iPhone. So Apple's gross profit looks more like $565 per phone over two years, up 125% from our previous estimate of $250 per phone. At Apple's current U.S. run rate of about 1.8 million iPhones per quarter, that's about $1 billion in gross profit per quarter (which will be recorded over two years).

If these numbers hold up, it means that Apple has inverted the business model it has used with iTunes and the iPod, where it makes a small amount on the software/service and a huge profit on hardware. Now Apple stands to make much much more on service than it ever will on the machines themselves. And that would certainly explain why Jobs was so quick to slash his prices this summer.

10/24 Update: Citibank analyst Richard Gardner also took a stab at estimating Apple's carrier bounty. His "checks suggest" AT&T is paying Apple $12 per month per subscriber -- 1/3 less than Munster's $18 estimate. That works out to $288 over 24 months. Running our gross-profit formula again, that suggests about $425 gross profit per iPhone over two years. And assuming a $12 monthly bounty, those 300,000 purchased-but-never-activated iPhones thru Q3 cost Apple about $86 million in lost AT&T revenue -- and gross profit -- over 2 years.